[Asia Economy Reporter Kim Bo-kyung] Last year, the market capitalization of housing prices in South Korea surpassed 5,000 trillion won for the first time in history. The ratio of housing price market capitalization to Gross Domestic Product (GDP) also rose to the highest level ever recorded.
According to the Bank of Korea on the 26th, the nominal housing market capitalization, which is the sum of domestic housing prices at the end of last year, was 5,056.7924 trillion won, an increase of 7.4% compared to the previous year (4,709.6118 trillion won).
Domestic housing price market capitalization first exceeded 1,000 trillion won in 2000 and surpassed 2,000 trillion won in 2006.
It then rose to 3,000 trillion won in 2010 and 4,000 trillion won in 2016, and last year recorded 5,000 trillion won for the first time. It took only three years for the total amount to increase by 1,000 trillion won.
Between 2002 and 2007, corresponding to the late Kim Dae-jung administration and the Roh Moo-hyun administration, the market capitalization increased by more than 10% annually. In particular, in 2002 (1,321.4267 trillion won), it increased by 16.8% compared to the previous year, marking the highest growth rate ever.
The market capitalization growth rate decreased to 2.5% and 2.6% in 2012 and 2013, respectively, but gradually increased thereafter. In 2018 (9.2%), it approached 10% again, recording the highest growth rate in 11 years.
The ratio of nominal GDP to market capitalization, an indicator showing how active the housing market is compared to economic growth, reached a record high of 2.64 times last year.
This ratio first exceeded 2 times in 2005 and has risen every year except for four occasions. An increase in this ratio means that the housing market performed better than the overall economy.
South Korea's nominal GDP growth rate has noticeably declined recently. The nominal GDP growth rate dropped from 5.45% in 2017 to 3.40% in 2018.
Last year, the GDP growth rate was 1.1% (from 1,898.2 trillion won to 1,919 trillion won), significantly lower than 3.4% in 2018 (from 1,835.7 trillion won to 1,898.2 trillion won).
During this period, while housing price market capitalization increased significantly, the nominal GDP growth rate slowed, causing the ratio to rise continuously.
It rose from 2.35 times in 2017 to 2.48 times in 2018, and last year increased further to the highest value of 2.64 times. Despite the Moon Jae-in administration implementing several strong measures, such as reinstating speculative overheating zones after six years, housing prices did not stabilize and the ratio continued to rise.
Professor Sung Tae-yoon of Yonsei University explained, "Under the Moon Jae-in administration, regulations on multi-homeowners began in earnest, causing the ratio of housing market capitalization to GDP to rise rapidly. The ratio increased as prices surged mainly in areas where demand was high and housing prices were originally expensive."
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